So Will the Fed Act Tomorrow?

     At this point who knows. We've certainly got enough bad economic news lately, like last Friday's jobs report. Still there have been so more positive gauges as well like the recent explosion in consumer confidence as measured by Gallup.

     You'd like to think that the Fed would rather do too much than not enough, but that's hardly been it's MO in the last 3 years. Usually it's the opposite.

     Then there is the claim that Bernanke won't want to do it now right before the election as he'll get criticized for effecting an election.

     The irony is, though, that if Bernanke believes now is time to act and he doesn't so as to not seem political, isn't that actually a political decision?

     You might have noticed that I haven't talked much about monetary policy. It's not that I'm not still interested, but I tend to go through phases, and I think it's safe to say monetary policy has been done to death over the last three years.

      I'll get back into it more at some point. Lately, I've been in full election fever mode. I can't even imagine what the post-election picture will be assuming the President wins-and that's looking like a better proposition every day.

      That's why I prefer just to think about the overriding present concern-that he be re-elected.

       What's been interesting is the idea that this recent spike of Gallups may have been caused by the DNC convention raising confidence. Talk about the ultimate stimulus package!

       It is good news that the German court upheld the ECB's stimulus programs. At least that threat is off the table.
       If we do get Fed action tomorrow will the markets rally or is that baked in the cake?

       For those who think the Fed won't act with the election approaching it has been done before:

       "In September 1992, the Federal Reserve culminated a long-running effort to stimulate the sluggish economy by cutting its benchmark interest rate to 3 percent, the lowest level it had reached in almost three decades."

        The Fed's chairman, Ben S. Bernanke, has argued in recent weeks that the economy needs help.

The cut was avidly sought by the administration of President George H. W. Bush, but it was not enough to change the course of the presidential election. Years later, Mr. Bush told an interviewer that the Fed’s chairman, Alan Greenspan, had cost him a second term by failing to act more quickly and more forcefully.

“I reappointed him and he disappointed me,” Mr. Bush said.

     http://www.cnbc.com/id/48998030

     "On Thursday, the Federal Reserve is poised to announce that it will once again seek to stimulate the economy in the middle of a presidential election season."

      "Fed officials insist that they do not consider politics in setting policy. But the imminence of the election makes it inevitable that the decisions reached by the Fed’s policy-making committee will be judged through a political lens."

       "Republicans have warned the Fed against taking action, and are seeking to impose new limits on its management of monetary policy. Some Democrats now echo Mr. Bush’s lament that new actions are too little, too late."

     It's tough not to notice that Greenspan did do something to help Bush in 1992-even if it wasn't enough to save his Presidency, whereas he didn't give Clinton such help in 1994-so maybe the Fed leans Republican?

    On the other hand the Fed did raise rates during the 2004 election. As long as they make a choice on the economic merits that's all anyone can ask of them.

     P.S. Again it's possible that if the Fed does QE3-maybe on a monthly basis?-the market won't rise much more because it's baked in the cake... Though I'm not sure what history shows on this.

     On the other hand, I think it's a good bet that if the Fed again refuses to act the market will tank at least at first.